In the News (Fri 9 Dec 16)

Monopolies that exist independent of government support are likely to be due to smallness of markets (the only druggist in town) or to rest upon temporary leadership in innovation (the Aluminum Company of America until World War II).

It takes years before a monopoly practice is identified, and more years to reach a decision; the antitrust case that led to the breakup of the American Telephone and Telegraph Company began in 1974 and was still under judicial administration in 1991.

The main kind of monopoly that is both persistent and not caused by the government is what economists call a "natural" monopoly.

Monopolies are often distinguished based on the circumstances under which they arise; the main distinctions are between a monopoly that is the result of coercion (coercive monopoly); or one that arises from the cost structure of the industry (natural monopoly) due to e.g.

A local monopoly is a monopoly of a market in a particular area, usually a town or even a smaller locality: the term is used to differentiate a monopoly that is geographically limited within a country, as the default assumption is that a monopoly covers the entire industry in a given country.

A coercive monopoly is one that arises and whose existence is maintained as the result of any sort of activity that violates the principle of a free market and is therefore insulated from competition which would otherwise be a potential threat to its superior status.

Vertical integrations are usually mergers of noncompeting companies where one's product is a necessary component or complement of the other's.

Vertical merger enforcement in the computer industry affords us the opportunity to ensure that competition in industries characterized by networks and extensive installed bases remains as robust as possible at all levels -- hardware as well as software -- while permitting parties to achieve the synergistic and innovation-unleashing benefits of vertical integration.

Finally, it demonstrates that the best way to develop a sensible vertical merger enforcement policy is to rely on the factual evidence presented and to act on a case-by-case basis when the facts support a plausible theory of anticompetitive harm.

Another form of horizontal monopoly is the winning, by a small circle of bidders, of privatised government monopolies in several sectors such as financial services, telecommunications and infrastructure.

Verticalmonopoly, on the other hand, was defined by Ghali as one in which major enterprises turn their businesses into monopolies at the expense of consumers.

The third form of monopoly the anti-trust bill deals with is called "the dominant share monopoly." This form of monopoly applies to businesses that corner 70 per cent of trading in a particular product or commodity or the provision of a certain service on the market, Ghali said.

Since vertical integration or, equivalently, vertical restraints succeed in internalizing type 1 externality but fail in internalizing type 2 it can be said that they yield a second best social outcome.

With this caveat in mind we should stress that vertical integration or vertical restraints should not be of antitrust concern insofar as they do not per se facilitate the existence of upstream monopoly power.

Secondly, the analysis is restricted to a type of vertical relationship and this throws a shade of doubt upon its application to our study cases, most of which embrace integration into distribution.

Vertical integration adopted by unregulated firms that are subject to a reasonable degree of competitive pressure generally promote efficiency and increase welfare.

Vertical integration tends to hamper effective conduct regulation and, in practice, it can be difficult to hold in check anti­competitive behaviour of vertically integrated firms by vertical conduct regulation without some measures of structural separation.

The potential benefits of vertical separation have to be carefully balanced against the loss of the economies of scope and scale, the costs of sector restructuring, and the possible loss of some internalization of externalities.

www.cepis.org.pe /muwww/fulltext/rpp/rppmonb1.html (5144 words)

Vertical Integration(Site not responding. Last check: 2007-09-11)

Vertical integration is the process whereby different aspects of a business, "upstream" and "downstream" -- ranging from sourcing raw materials and production to marketing -- are brought together.

Vertical integration may also occur when complementary companies make long term contracts with one another or joint ventures, or if they decide to merge.

Vertical integration should not be confused with horizontal integration, or movements toward greater oligopoly or monopoly within an industry.

The Draft Law prohibits any horizontal monopoly agreement among competing undertakings, while only those verticalmonopoly agreements that substantially eliminate or restrict competition are prohibited as stated in the November version of the Draft Law.

However, on the issue of whether administrative monopolies should be specifically proscribed in the Draft Law, there are two schools of thought exist: the first is that such monopolies should be eliminated through economic and structural reform, while the second is the theory of legislative regulation.

Well, there's a much easier and more precise indicator of a monopoly: competition is restricted due to application of force (be it legal or illegal, direct or indirect).

Monopolies are simply categoried by (a) domination in a market with high barrier to entry, (b) vertical and horizontal market expansion based on their original market through anti-competitive techniques -- exclusivity, dumping, bundling.

The problem with that break up is without the vertical integration they were still not regulated, so people continued to pay inflated crude prices while paying market rates in the other areas for the few years it took other companies to catch back up and the market to correct itself.

Monopolies are often distinguished based on the circumstances under which they arise; the broadest distinction is between monopolies that are the result of government intervention and those that arise without it e.g.

A government monopoly may exist at different levels (eg just for one region or locality); a state monopoly is specifically operated by a national government.

A coercive monopoly is one psychology that arises and whose existence is maintained as the result of filiation any sort of activity that violates the principle of a free market and is therefore insulated from competition which would otherwise be a potential threat to its superior status.

Well before 1982, that balance for evaluating vertical mergers had swung heavily toward a greater recognition of the cost of false positives (i.e., treating mergers as anticompetitive when they are not) and a widespread discounting of the potential for false negatives (i.e., failing to deter anticompetitive vertical mergers) and their costs.

The concern was that the vertical relationship between FT and DT on the one hand and Sprint on the other could provide incentives for the parties to discriminate against competitors in access to monopoly networks in France and Germany.

The "Post-Chicago" literature on the potential for vertical mergers and restraints to "raise rivals' cost" is enormous, with the seminal contributions by Williamson (1968) and by Salop [e.g., Salop and Scheffman (1983)].

www.usdoj.gov /atr/hmerger/11709.htm (7602 words)

Economics of Organisations and Strategy(Site not responding. Last check: 2007-09-11)

Vertically integrated companies are united through a hierarchy and share a common owner.

Vertical integration is one method of avoiding the hold-up problem.

vertical integration is called a verticalmonopoly, although it might be more appropriate to speak of this as some form of cartel.

Vietnams monopoly coal producer announced a sudden 44 percent hike in coal prices for some key industries, effectively revoking the subsidies they were...

Government Monopoly - Your government is a kind of monopoly, too, with all the problems of any other monopoly.

Teachers' Organizations Seek to Break Education Union Monopoly - Monopolies are bad, and that includes union monopolies like the one in education...but some organizations are struggling to give teachers more choice.

The vertically integrated telcos were supposed to be natural monopolies because of the vast size of their wireline networks, built by billions of dollars investment over several decades.

One business model would appear to be a choice of service from a single vertically integrated giant telco on the one hand for cable, telephony, wireless (PCS), internet, content on demand all brought to us on a DSL enhanced copper or coax based local loop.

Regulators, given their vertical mindset, seem to have let the Internet progress as far as it has almost by inadvertence.

www.mail-archive.com /list@ifwp.org/msg10856.html (2506 words)

Vertical Integration and Economic Welfare(Site not responding. Last check: 2007-09-11)

For example, in the case of a bilateral monopoly, where there is one seller and one buyer, either firm may be able to eliminate the costs of negotiating and enforcing a contract with the other through integration.

Although vertical integration because of technological or transactional economies can generally be expected to improve economic welfare, welfare is not necessarily increased by integration in response to the existence of an imperfect market.

In a successive monopoly, one firm is the only producer of an intermediate product that is sold to a second firm, which is the only producer of a final product sold to consumers.

BookWeb: Features: Books on the Brink(Site not responding. Last check: 2007-09-11)

Vertical integration always risks stifling competition, since it typically shuts out other companies from doing business with the vertically integrated company or forces them to do business on less favorable terms.

Where the vertical integration is threefold--as it is in this instance with a publisher, a wholesaler, and a retailer--there is a much larger risk of exclusion.

The effects of monopoly are likely to be seen in quality as well as in quantity.

www.bookweb.org /news/features/1608.html (5020 words)

The First Mile Bottleneck: A New Job for Our Cities(Site not responding. Last check: 2007-09-11)

But the key point to remember from this comparison is that local access to information and communications networks is still being controlled by what are called verticalmonopolies.

A verticalmonopoly is where a company owns or controls the resources to make a product as well as the whole delivery system up to the end consumer.

On the other hand, those firms that are the first to build their own local fiber optic infrastructure can establish a verticalmonopoly.

Monopoly leverage involves using a monopoly in one market to achieve market power or monopoly in a second adjacent market.

Bowman, Bork, and other Chicago-school commentators successfully criticized the simple theory of monopoly leverage as failing to recognize that there may be only a single monopoly profit available to the monopolist, even if it integrates.

More recent economic theories have addressed the single monopoly critique and have demonstrated a variety of circumstances in which monopoly leverage is a rational strategy that harms consumers.

The IEC exploits its status as a monopoly to pass on to consumers all its expenses, instead of having to economize or become more efficient, as it would have to do if it were competing with other companies.

The concept of a natural monopoly in the electricity sector arises from the large investments which are required for the establishment of power stations and the power grid.

Increasing returns to scale, which are the justification for a so-called natural monopoly, exist only in the case where the costs of a single producer are lower than those of numerous producers in a competitive environment.

The PRC report notes that the government "failed three times to submit a draft anti-trust law to parliament." This, the study adds, is despite the fact that various types of monopolistic practices have developed in the local market over the past few years.

The most notable form of monopoly practice, according to the study, is the winning by a small circle of bidders of privatised government monopolies in the financial services, telecommunications and infrastructure sectors.

This, the study explains, differs from "verticalmonopoly" in which businessmen promote their original field of business to monopolistic levels.

In the framework of a vertical differentiation model where consumers are continuously distributed with respect to their intensity of preference for quality and their income, we studdy the optimal strategy of a natural monopoly : how many qualities to produce ?

Considering costless production, the monopoly optimal strategies are such that the consumers with the same income buy the same quality.

If the highest quality is not sufficiently high, the monopoly cannot extract all the surplus of the rich consumers.

It is not because they have a monopoly over all the other companies with their operating system (they do, but that is not what caused the various countries to go after them).

The government does allow Natural monopolies to stay alive when they determine that it is in the public’s interest to be served by a Natural monopoly, but all Natural monopolies start out as either a Horizontal or a Verticalmonopoly, or both.

While I agree that Microsoft is technically a monopoly and needs to be watched, the evidence is very clear that they have contributed a lot more to our society and economy, and that the "harm" done was primarily done to other companies that largely due to their own mistakes gave Microsoft some additional opportunities.

The value of the resulting inter network was enhanced not by any one company's vertical market share but rather by the size of the network measured by numbers of computers connected.

The vertically integrated telcos were supposed to be natural monopolies because of the vast size of their wireline networks, built by billions of dollars investment over several decades.

One business model would appear to be a choice of service from a single vertically integrated giant telco on the one hand for cable, telephony, wireless (PCS), internet, content on demand all brought to us on a DSL enhanced copper or coax based local loop.